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Business insight for advisory firmsSat, 17 Mar 2018 09:29:02 +0000en-UShourly1http://adviserbusinessreview.com//nas/content/live/adviserbr/media/ABR-square-150x148.pngAdviser Business Reviewhttp://adviserbusinessreview.com
3232Protectionism and the growth of political riskhttp://adviserbusinessreview.com/8187-2/
http://adviserbusinessreview.com/8187-2/#respondFri, 16 Mar 2018 09:26:16 +0000http://adviserbusinessreview.com/?p=8187Anthony Rayner, manager of Miton’s multi-asset fund range, looks at two recent events and how they link to political risk in the markets and global growth

]]>Anthony Rayner, manager of Miton’s multi-asset fund range, looks at two recent events and how they link to political risk in the markets and global growth

The Italian election and the announcement of US tariffs on steel and aluminium, have been much talked about, but rarely linked. Yet they are linked in a fundamental way.

The Italian election saw over 50% of the vote go to populist parties, with traditional parties losing ground, while the US tariff announcement looks at odds with the philosophy of free-trade globalisation that has dominated the last few decades. Both underline important changes to the status quo and both are driven by similar forces.

A growing dissatisfaction with the status quo has been much documented, with Brexit and the election of Donald Trump high profile examples, which caught many commentators and investors off-guard. These recent events remind us that these dynamics are not fly-by-night and lead us to re-examine exactly what is driving this change.

A headline measure of the health of the labour market, like the unemployment rate, which is at or close to record lows in many countries (UK, Germany and the US, but not Italy) provides little insight. But dig a little deeper and unequal income and wealth distribution (particularly housing), as well as job insecurity, go much further in explaining why many want to hit the reset button, particularly when looking at the younger demographic.

Indeed, the Italian election is just one of many votes for populist parties in recent times. The graph below, put together by Deutsche Bank, shows how support for populist parties is at a multi-decade high, and is in fact just below the level of the 1940s (the criteria is fairly subjective but has been consistent over time).

It’s tempting to think of the Italian vote as anti-EU, though it’s perhaps more accurate to say anti-establishment and Euro-sceptic. More specifically, it was a comment on the dire state of the Italian economy and rising levels of immigration, a combination rarely ignored for long in history.

Turning to the US tariff announcement, history shows that if this evolves into a trade war then, yes, those that depend most on exports (like China and the Eurozone) might suffer most, but countries like the US will suffer too (the S&P 500 Index derives around 30% of its revenue outside the US). The worst-case scenario is one where a trade war adds to the inflationary environment and curbs growth, in essence leading to stagflationary pressures.

Whether these moves are a threat to the world order or not is best answered by another question: is this the beginning or the end of protectionist measures? For example, is this the beginning of a preference for multi-lateral regional deals and the beginning of using ‘national security’ as justification for tariffs? Are we starting to see protectionism in terms of foreign takeovers blocked too?

It’s early days, in terms of the detail and degree of retaliation, but the subsequent resignation of Gary Cohn, the US administration’s top economic advisor and free-trade enthusiast, leaves a predominance of advisers with a preference for protectionism such as Peter Navarro, one of the key architects of resurgent US economic nationalism.

Our view is that the base case of strong growth and rising inflation remains the primary driver of financial markets but that political risk is not to be ignored, whether it’s populism or protectionism.

]]>http://adviserbusinessreview.com/8187-2/feed/0Applying RNRB in respect of downsizinghttp://adviserbusinessreview.com/applying-rnrb-in-respect-of-downsizing/
http://adviserbusinessreview.com/applying-rnrb-in-respect-of-downsizing/#respondThu, 15 Mar 2018 20:35:54 +0000http://adviserbusinessreview.com/?p=8185How does the residence nil rate band work after the client or their benefactor has downsized their property? Kim Jarvis, technical manager, Canada Life, explains with case studies

]]>Kim Jarvis, technical manager, Canada Life, presents case studies showing how the residence nil rate band works after the client or their benefactor has downsized their property

In addition to the standard nil rate band (£325,000), from 6 April 2017 each person is entitled to a residence nil rate band (RNRB) to use against the value of their home if it is left to direct descendants on death. Currently the rate is set at £100,000, to increase by £25,000 each year until it reaches £175,000 in April 2020.

You might think that in order to benefit from the RNRB, a person must own a property at the time of their death.

However, the rules take into account that individuals who downsize to a smaller and less valuable property or dispose of their property and move into rented or residential care, and in the process lose some or all of their RNRB. As a consequence those who have downsized or disposed of their property before their death will, if certain conditions are met, be compensated for lost RNRB with a ‘downsizing addition’.

The following key points must apply:

• The property must have been owned by the person and it would have qualified for the RNRB had they retained it.

• The person must have sold, given away or downsized to a less valuable home, on or after 8 July 2015 and lost out on all or part of the RNRB as a result.

• Assets of an equivalent value must be inherited by their direct descendants on death.

So, if you are dealing with a client’s estate where you know they sold their property in, say, May 2019 and bought a less valuable home, how do you calculate what RNRB the estate is entitled to?

Case Study 1

• Henry, a single man, sells his house for £100,000 in May 2019 and downsizes.

• When he dies in July 2020 the new house is worth £85,000

• On death his estate is below £2 million

There are 5 steps to work out how much RNRB has been lost:

Step 1 – Calculate the RNRB that would have been available when the former home was sold. The RNRB available at the time the house is sold (May 2019) is £150,000.

Step 2 – Divide the value of the former home, when it was sold, by the figure in step 1, and multiply the result by 100 to get a percentage.

(£100,000 / £150,000) x 100% = 66.67%

Step 3 – On Henry’s death, as there is a house in his estate you next need to calculate the percentage of the RNRB that has been used. So, you divide the value of the house, at the date of death, by the RNRB available (£175,000), and multiply the result by 100.

(£85,000 / £175,000) x 100% = 48.57%

Step 4 – Deduct the percentage in step 3 from the percentage in step 2.

66.67% – 48.57% = 18.1%

Step 5 – Multiply the RNRB available at the time of Henry’s death by the figure from step 4, to give the amount of the lost RNRB.

£175,000 x 18.1% = £31,675

So on Henry’s death £31,675 of other assets can be passed to direct descendants, which is within the RNRB.

Case Study 2

• Henry, a widower, sells his house for £250,000 in May 2019 and buys a new house

• His wife, Sheila, had died in 2014 leaving all her estate to him

• When Henry dies in July 2020 the new house is worth £200,000

• On death both Sheila’s and Henry’s estates were worth less than £2 million.

Step 1 – Calculate the RNRB that would have been available when the former home was sold. This figure is made up of the RNRB available when the former home was sold and any transferable additional threshold available when Henry died.

The RNRB available at the time the house is sold is £150,000. On Henry’s death, his estate is entitled to 100% transferable RNRB, which is £175,000. So the available RNRB is £325,000 (£175,000 + £150,000).

Step 2 – Divide the value of the former home when it was sold by the figure in step 1, and multiply the result by 100 to get a percentage.

(£250,000 / £325,000) x 100% = 76.92%

Step 3 – On Henry’s death, as there is a house in his estate you next need to calculate the percentage of the RNRB that has been used. So, you divide the value of the house, at the date of death, by the RNRB available, which is £350,000 (£175,000 plus 100% transferable RNRB), and multiply the result by 100.

(£200,000 / £350,000) x 100% = 57.14%

Step 4 – Deduct the percentage in step 3 from the percentage in step 2.

76.92% – 57.14% = 19.78%

Step 5 – Multiply the RNRB available at the time of Henry’s death by the figure from step 4, to give the amount of the lost RNRB.

£350,000 x 19.78% = £69,230

So on Henry’s death £69,230 of other assets can be passed to direct descendants, which is within the RNRB.

Conclusion

The downsizing rules are complicated and a claim needs to be made in a similar way to a claim for transferring unused RNRB.

Remember that the downsizing RNRB addition is applied together with the available RNRB, but the total of the two would still be capped so that they would not exceed the limit of the total available RNRB for a particular year. The downsizing RNRB also tapers away in the same way as the RNRB for estates above £2 million.

]]>The Chancellor’s Spring Statement was met with mixed response from industry experts, with little in the way of new or unexpected policy announcements.

The Chancellor used today’s Statement as an opportunity to unveil stronger economic growth, forecast to be 1.5% in 2018, up 0.1% on the previous projection. He also said the Office for Budget Responsibility expect inflation to fall over the next 12 months, and wages to rise faster than prices over the next five years.

In addition, the Chancellor noted that the UK’s public finances have reached a “turning point”, with borrowing down and the first sustained fall in debt in 17 years. In 2009-10, the UK borrowed £1 in every £4 that was spent. The OBR expect that number to be £1 in every £18 this year.

However, while Schroder’s chief economist Keith Wade described this as “good news,” he said much of it was anticipated and “still fairly cautious”, with only a modest upward revision for economic growth.

Wade said: “We should not be surprised; it’s too early in the political cycle for anything more bullish and the Chancellor himself said that forecasts are there to be beaten. No mention though of the UK being the weakest economy in the G7 at a time when the rest of the world is booming.”

Steven Cameron, pensions director at Aegon, said the updated forecasts of lower price inflation and a return to real earnings growth will have “knock-on implications” for future increases to the state pension and those who have final salary pension schemes.

He commented: “While Brexit is grabbing almost all Government’s attention, it’s still disappointing not to have heard even a little on other longer term Government priorities in a number of key areas.

“The Government announcement earlier this week that 10 million Brits can expect to live to age 100 is a stark reminder of just how important it is to tackle the issue of social care funding. A growing number of us will need some form of long term care in later life and funding implications are huge. To allow people to start planning for their share, the Government needs to advance urgently its proposals on how much the state will pay and how much individuals will need to fund for themselves.

“Similarly, while automatic enrolment means 9 million extra employees are saving for their retirement through workplace pensions, the self-employed are excluded. With the Chancellor saying the Conservatives are the champions for small businesses, we need new policies to stop self-employed becoming second class citizens in retirement.”

Boosting productivity

Despite the Office for National Statistic’s cautious optimism about UK productivity in late 2017, today’s statement failed to announce an upgrade to the productivity outlook.

Angus Dent, CEO of ArchOver, said the lack of upgrade was “just another chapter in a now-familiar story – the government just can’t jolt the economy out of its lethargy.”

According to ArchOver, the onus is upon businesses to take matters into their own hands.

Dent said: “If we can’t get out of this rut, we won’t stand much chance of making a smooth economic transition out of the EU next year – we won’t have the leeway to absorb any unexpected shocks. Despite that, Philip Hammond used today’s Spring Statement speech to essentially sit on his laurels and avoid taking any new decisive action.

“While the Chancellor rests easy, British business must get to work. Given that the OBR continues to find the government’s position on SME productivity ineffectual, business owners need to take matters into their own hands and look to fund bolder new business projects and models.

“They should use alternative financing options to fund new services, hire more staff and improve working conditions. You need money to make money, so UK companies must invest in driving productivity. If the Government won’t do it, entrepreneurs must take the initiative.”

Home owners

However, there was good news for those with a mortgage, who could benefit if the government has greater “breathing space” when it comes to interest rate hikes thanks to lower inflation estimates.

Russ Mould, investment director at AJ Bell, said: “Even if the stock market looks to be shrugging, the debt markets look to be pleased. The OBR’s minor cuts to its estimates for inflation may help a little on this front too, giving the Bank of England breathing space when it comes to its latest interest rate decision. This helps anyone with a mortgage, at least indirectly, so neither the chancellor’s long-term debt reduction policy nor his statement should be taken lightly.

“The healthier the nation’s finances are, the more cheaply the Government can borrow and the interest rate at which the government can borrow that forms the base of the calculation that sets the cost of mortgages.

“Anyone with a home loan may therefore get some knock-on benefits from today’s statement – providing the OBR is correct in its assessment of inflation and an unexpected economic downturn does not blow the budget deficit reduction forecasts off course.”

]]>http://adviserbusinessreview.com/spring-statement-gets-mixed-response/feed/03 top tips for tax year end – a brief checklist for advisershttp://adviserbusinessreview.com/tax-year-end-a-brief-checklist-for-advisers/
http://adviserbusinessreview.com/tax-year-end-a-brief-checklist-for-advisers/#respondTue, 13 Mar 2018 14:52:36 +0000http://adviserbusinessreview.com/?p=8178AJ Bell's Tom Selby offers three tax tips for advisers in the run up to the tax year end

]]>AJ Bell’s Tom Selby offers three tax tips for advisers in the run up to the tax year end

The end of the financial year provides a good opportunity for advisers and clients to take stock of the last 12 months; sweep up any unused tax allowances; and consider how any upcoming rule changes could affect future retirement planning decisions.

This April is no exception, with an overhaul of the Scottish income tax system and an incoming cut to the dividend allowance likely to be the focus for many advisers.

While delivering an exhaustive list of things to consider during the maelstrom of tax year-end would be an impossible task, here are a few things to consider:

1. Scottish income tax overhaul

If you have clients who are Scottish taxpayers, big changes are just around the corner. For the 2018/19 tax year people living and working north of the border could be subject to a different rate of income tax to their counterparts in the rest of the UK.

Two new tax bands (‘starter rate’ and ‘intermediate rate’) will be established, while the higher and additional income tax rates will also be increased (see table for details).

The move will have a knock-on impact on pension savers in Scotland who currently receive pension tax relief at their marginal rate. HMRC has recently confirmed details of how this will work in practice.

Members of schemes which apply tax relief after they have paid income tax will be affected in different ways.

Savers will still receive tax relief automatically at the basic rate of 20%, meaning those falling into the starter rate (£11,850 – £13,850) and basic rate (£13,850 – £24,000) bands won’t have to do anything in order to receive the tax relief they are due.

However, anyone who falls into the new 21% intermediate band (£24,000 – £43,430) will need to tell HMRC via self-assessment in order to get the extra 1% of tax relief they are entitled to. While these are unlikely to be core adviser clients, it is important to ensure anyone who is pulled into this new tax band claims the tax relief they are entitled to.

Higher and additional-rate taxpayers will continue to apply for tax relief through self-assessment, as they do at the moment. Clients in these tax brackets will have an extra reason to funnel their salary into a pension as they get an additional 1% in tax relief under the new framework.

Members of net pay schemes – where pension contributions are deducted before income tax is applied to their pay – will not be affected by the changes.

2. Beware the dividend allowance tax trap

The amount of dividend income clients can receive tax-free will be slashed from £5,000 to £2,000 in the 2018/19 tax year. Any dividend income received above this amount will be taxed at 7.5% (basic-rate taxpayer), 32.5% (higher-rate taxpayer) or 38.1% (additional-rate taxpayer).

In pounds and pence, someone who receives £5,000 in dividends would previously have paid no tax but from April they will be hit with a tax bill of £225 if they are a basic-rate taxpayer. Higher-rate taxpayers, meanwhile, will pay £975 more in tax and additional-rate taxpayers a whopping £1,143.

Directors (this could include advisers themselves as well as clients) should consider bringing forward their dividend payments to before 6 April 2018 to minimise their tax bills. Client portfolio reviews should also look to root out any dividend-paying investments held outside tax wrappers and consider shifting them into an ISA or SIPP.

3. Use carry forward to benefit from a £160,000 annual allowance

While the amount people can save tax-free in a pension has been pared back by successive Chancellors from £255,000 in 2010 to £40,000 today, savers who use ‘carry forward’ rules can potentially boost their annual allowance to £160,000.

Carry forward allows you to utilise any unused annual allowance from the three previous tax years in the current tax year. So for 2017/18 you can top-up your pension with unused allowances from the 2014/15, 2015/16 and 2016/17 tax years.

April 5 therefore represents the last opportunity for clients to utilise any unused allowance from 2014/15.

It’s that time of year again when clients want to know how much they can put in their pension without incurring an Annual Allowance (AA) tax charge.

For clients with defined contribution (DC) plans the situation is straightforward enough, now that we have Pension Input Periods aligned to the tax year, but what about those with defined benefit (DB) pensions, and what if they are also subject to the AA taper and/or the money purchase annual allowance (MPAA)?

In a DB arrangement contributions are not allocated to individuals and so in order to calculate the Pension Input Amount (PIA) it is necessary to calculate the increase in the value of a member’s entitlement over the year in question:

1. Calculate the opening value of the member’s pension

Step 1 – Calculate the value of the pension built at the start of the year

Sarah wants to contribute to her SIPP in 2017/18, however she is also a member of her employer’s final salary scheme. She has 25 years’ service at the start of the year and a pensionable salary of £80,000. At the end of the year her salary has risen to £82,400. The accrual rate is n/80th plus a lump sum of 3n/80ths

Starting value:

• 16 x (25/80 x £80,000

• plus 3 x (25/80 x £80,000)

• £400,000 + £75,000 = £475,000

• Adjusted for CPI = £475,000 x 1.01 = £479,750

Closing Value:

• 16 x (26/80 x £82,400)

• plus 3 x (26/80 x £82,400)

• £428,480 + £80,340 = £508,820

Pension Input Amount:

• £508,820 – £480,700 = £29,070

• Available AA = £40,000 – £29,070 = £10,930

In this example Sarah has £10,930 unused AA in 2017/8, but that might not be the end of the story. She could be subject to additional restrictions and/or have unused AA from previous tax years, and so it is important to gather all the facts and to understand how they interact.

Interaction of the MPAA, the AA Taper and carry forward:

1. MPAA

The MPAA reduces tax relievable contributions into DC plans to £4,000, creating an alternative AA of £36,000 for DB contributions (note – the MPAA was £10,000 in 2015/16 and 2016/17, resulting in an Alternative AA of £30,000).

This makes it necessary to carry out 2 tests:

• any DC PIA excess over £4,000 plus any excess DB PIA over £36,000

• any excess total PIA over £40,000.

The tax charge will be the higher of these two amounts. For example, if Sarah had forgotten that she had triggered the MPAA her tax charge would apply to £6,930 (£10,930 – £4,000), as neither the alternative AA or total AA has been breached (both values = 0).

2. AA Taper

Clients who are subject to the AA taper will have their AA reduced, resulting in a reduced AA in each year that it applies.

If the MPAA has been triggered the reduction applies to the alternative AA, effectively resulting in a lower overall limit within which DC contributions are limited to £4,000.

Carry forward may still be used however the amount carried forward would be limited by the taper applicable in that year. It should also be noted that up to £40,000 unused AA can be carried forward from 2014/15 and 2015/16 regardless of earnings since the taper had not yet been introduced.

3. Carry Forward

If the AA in the current tax year has been fully utilised, unused AA from the previous 3 tax years may be carried forward to increase the overall AA available.

It is possible to carry forward unused AA to a year where the MPAA applies, but it will be added to the alternative AA and not the MPAA. Carry forward from years in which the MPAA applies will be limited to the unused alternative AA; any shortfall in DC contributions may not be carried forward.

In the above example even if Sarah had made no DC contributions in the last 3 tax years she could only carry forward any unused alternative AA and her MPAA in 2017/18 would remain at £4,000, thus limiting her ability to invest in her SIPP.

The complexity of the above proves the value and need of professional financial advice, and may even help if you have to justify this to clients.

It’s widely known that chargeable event gains arising on life assurance policies, capital redemption policies and purchased life annuities are subject to income tax. Most paraplanners will also understand the chargeable gain calculation where a client only surrenders one investment bond in a tax year. However, what if clients need to surrender more than one investment bond within the same tax year, creating a series of gains?

Where a client surrenders more than one investment bond in a tax year the chargeable gains are not added to that client’s income in order of surrender, but are aggregated and treated as the top slice of their total income.

In this article we consider the impact of chargeable event gains arising on more than one investment bond in the same tax year.

Example 1

Alexander has surrendered two UK bonds: Bond A in August 17 and Bond B in January 2018. As he surrendered both within the same tax year (2017/18) we must consider the multiple gain rules. Bond A produced a chargeable gain of £5,000 and Bond B produced a chargeable gain of £4,000, giving total gains of £9,000. Alexander’s income for 2017/18 is £30,000 and when the total gains are added to his income he remains a basic rate taxpayer. As UK bonds, they are deemed to have paid basic rate income tax and therefore Alexander has no further tax liability.

If the bonds had been international then Alexander would have an additional tax liability of 20% x £9,000 = £1,800 on the chargeable gains. This is because potentially there is no tax imposed on the income and gains of the underlying funds of an international bond.

That’s straightforward, but what if the total gains take Alexander into a higher rate tax bracket? Then top-slicing relief must be considered.

Example 2

Alexander has surrendered two UK bonds: Bond A in August 17 and Bond B in January 2018. Bond A had been in force for 10 complete years and produced a chargeable gain of £24,000. Bond B, which had been in force for 4 complete years, gave rise to a gain of £3,600. This gives total gains of £27,600.

Alexander’s income for 2017/18 is £43,000. Adding the total gains to Alexander’s income puts him into the higher rate tax band, so top-slicing relief is available.

The top-sliced gain for each investment bond needs to be calculated and then added together:

Bond A = £24,000 / 10 = £2,400

Bond B = £3,600 / 4 = £900 £3,300

As UK bonds, they are deemed to have paid basic rate income tax and £2,000 of the gain is covered by the basic rate tax band. Therefore £1,300 of the top-sliced gain is chargeable at the higher rate of 20%. Additional tax payable on the top-slice is therefore £1,300 x 20% = £260.

Once the additional tax has been calculated it needs to be pro-rata’d across the two bonds being surrendered. This will provide the amount of the additional tax attributable to each individual bond.

Bond A = 260 x (2,400 / 3,300) x 10 = £1890.91

Bond B = 260 x (900 / 3,300) x 4 = £283.64

This gives Alexander a tax liability of £2,174.55.

Example 3

Let’s now consider the situation where Alexander has surrendered not just the two UK bonds, mentioned above, but also an international bond. When surrendering a mixture of UK and international bonds all the chargeable gains are treated as the highest part of income. This means that the chargeable gain for the international bond will not benefit from the 0% starting rate for savings or the personal savings allowance.

Bond C had been in force for 5 complete years and produced a chargeable gain of £15,000. Alexander’s total gains for the tax year 2017/18 are now £42,600.

Firstly, we must calculate the total top-sliced gains. The top-slice gain for Bond C is £15,000 / 5 = £3,000, giving the total top-sliced gains as £6,300.

As potentially there is no tax imposed on the income and gains of the underlying funds of an international bond the whole gain is chargeable to 20%, therefore the basic rate liability is £15,000 x 20% = £3,000. The UK bonds are already deemed to have paid basic rate tax.

£2,000 of the gain is covered by the remainder of the basic rate tax band. Therefore £4,300 of the top-sliced gain is chargeable at the higher rate of 20%. Additional tax payable on the top-slice is therefore £4,300 x 20% = £860.

Once the additional tax has been calculated it needs to be pro-rata’d across the three bonds being surrendered. This will provide the amount of the additional tax attributable to each individual bond.

Bond A = 860 x (2,400 / 6,300) x 10 = £3,276.19

Bond B = 860 x (900 / 6,300) x 4 = £491.43

Bond C = 860 x (3,000 / 6,300 x 5 = £2,047.62

Alexander has a tax liability of £8,815 against the chargeable gains. In addition to the higher rate tax liability of £5,815, he has a basic rate tax liability of £3,000 on the international bond.

Summary

So, remember where a client has surrendered more than one investment bond, in any one tax year, the chargeable gains are aggregated together. UK bonds are treated as savings income but as they carry a tax credit any chargeable gains are treated as ‘the highest part of the individual’s total income’. But where a client has surrendered two international bonds in the same tax year, the chargeable gain could benefit from the 0% starting rate for savings and the personal savings allowance.

However, if there is a combination of UK and international bonds being surrendered, the chargeable gains are all treated as the highest part of the individual’s total income. This approach does not recognise that international bonds are taxed with other non-bond savings income while UK bonds are taxed as a top-slice on top of dividend income (despite being savings income).

]]>Henna Hemnani of Miton’s multi-asset fund range, explains why the fund manager has been building on its soft commodities holdings

We recently introduced the ‘feeding the world’ agriculture theme to our portfolio. As with any position, the starting point of our decision-making process is to consider the data. Global demand for food continues to rise as the population grows and is on track to potentially double by 2050, but resources are limited.

The world’s farmland is shrinking on an absolute basis for the first time ever, intensifying the existing challenge of meeting global food demand. Additionally, more frequent disruptive weather conditions in key growing regions, such as La Niña conditions in South America or muted monsoons in India, threaten the production of a broad range of key crops.

These trends suggest that demand and supply dynamics should be very supportive for agricultural commodity prices and agribusinesses, especially for technological companies focussed on productivity enhancements like precision farming.

However, the other important part of our process is to see some positive affirmation of a theme before introducing it into the portfolios, usually in asset prices, and soft commodity and agribusiness prices have been falling for the past few years. Despite the data being compelling for some time, this area has been completely out of favour and as a result we have had very limited exposure here.

We have continued to monitor this area, and more recently, as we have moved on from a deflationary world to an environment of rising inflation, interest rates, and a falling US Dollar, we have started to see some emerging price momentum. We have seen an uptick in soft commodity prices, for example in soya and wheat, as we get a demand side push in prices.

Agribusiness stock prices are also breaking higher as this typically leads to more demand for machinery and supplies. We think that an inflationary environment combined with more volatile weather patterns is a positive backdrop for agricultural commodities and businesses, and that the sector will continue to recover strength.

Through our regular screening process, we put together a basket of eight stocks, giving us precise exposure to our “feeding the world” theme while keeping our stock-specific risk minimised. Importantly, all of the stocks have sensible valuations and debt profiles so that they can continue to perform well in a rising rate environment.

The basket is diversified across a range of regions including the US, Europe and more commodity-sensitive emerging markets such as Brazil and Chile. It is also diversified across a range of businesses, from aquaculture and farmland to fertiliser and machinery companies.

This position should do well in a broadly rising inflation environment, complementing our overarching macro view, but also add further diversity to the funds as it is driven by some independent long-term structural trends.

This theme still seems to be underappreciated by markets, with only a small percentage of global assets allocated to soft commodities. They have been a laggard but might be a late cycle winner as capital starts to flow out of bonds and other areas that benefitted in the low growth, low inflation and low interest rate environment. We would expect to see further positive price momentum in this area as the market starts to appreciate this theme.

]]>http://adviserbusinessreview.com/feeding-the-world-an-investment-theme-worthy-of-appreciation/feed/0Who comes first – staff or clients?http://adviserbusinessreview.com/comes-first-staff-clients/
http://adviserbusinessreview.com/comes-first-staff-clients/#respondWed, 28 Feb 2018 09:22:19 +0000http://adviserbusinessreview.com/?p=8167Brett Davidson argues there are three very good reasons to first focus on creating a happy team if you want happy clients

]]>Brett Davidson argues there are three very good reasons to first focus on creating a happy team if you want happy clients

What’s your role as the leader within your business? Clearly it’s to lead, but what does that really mean?

Having credibility is part of your leadership role; that is, you need to perform your specific role within the business well. However, assuming you can do that, there are some higher-order leadership skills that you’ll want to develop.

The most important of these is nurturing, guiding and strengthening the people within your organisation. Why?

To paraphrase Herb Kelleher, the founder of Southwest Airlines, well-known for its award-winning service:

1. Focus on your staff first – because they deliver the client experience and are key to achieving success. Happy and fulfilled staff lead to happy and fulfilled clients.

2. Focus on your clients second – happy clients willingly pay for your service and refer other clients for the business to grow and expand.

3. Focus on profits/shareholders third – clients that pay a premium and refer other clients generate the profits that adequately compensate owners and shareholders for their risk.

Making happy campers

Everything begins and ends with your team. Regardless of whether they are supporting you in your client work, or they deal with clients directly themselves, this statement is always true.

Business is an evolving and ever-changing dynamic; usually in an upward direction. That is, the market gets tougher, not easier. You and your team have to be evolving too, just to stand still, let alone to get ahead.

So, how do you do nurture, guide and strengthen your team?

Live and learn

The best businesses I work with are actively creating a culture of ongoing learning and personal development for everyone on the team. They recognise that developing their team pays them back.

However, creating this type of business culture is no walk in the park. Amazingly, when you float the idea of doing some extra study or personal development, many team members can become very anxious. Maybe they’re worried about what the extra study or personal development might involve. Can they do it? Will they enjoy it? How much time will it require?

This is where the nurturing comes in. The leader’s role is to help people see and understand the imperative for development. While there are obviously benefits for the business, there are many benefits for the individual staff members too. Whether they stay with you for a lifetime or leave after a three-year stint, extra skills have currency in the job market and the remuneration of team members will rise to reflect that as they grow and develop.

Stay the course

A client I worked with a few years ago is very strong in the area of team development. He has always believed in supporting and developing his people. At one point in our work together he created personal development plans for each and every team member.

It was brilliant. They all had a plan mapped out, quarter by quarter for the next 12 months. It wasn’t onerous. All they had to do was one small piece of training each quarter, and it had been tailored to their personal preferences and the skills within their role.

What happened?

At the end of the 12 months, not one person had done one thing in their development plan. So much for that idea.

Let me be clear, this is a very good team of people, and one of my favourite firms that I’ve worked with. So what went wrong?

The truth is there may have been different reasons why each person failed to execute their own development plan. Some might have felt the time out was a bit like skiving off, even though it was encouraged from above. Others might have felt anxious about learning something new; after all it can be a bit scary. Others might not have wanted to make the extra effort required. Who knows?

The learning for this particular client was that he would have to be a little more actively involved in encouraging, guiding and cajoling people to complete on their development plans. It didn’t deter him from pursuing his vision of team development, he was simply forced to adjust his approach.

What is development?

Whenever I talk about personal development to business owners they immediately start thinking about staff getting more Financial Planning qualifications.

Whilst a few more exams might be part of that process for some team members, I’m thinking far more broadly.

For business owners it might be doing an MBA, or flying to conferences in the United States (where incidentally, all the best thinking on the business of Financial Planning occurs). It might be doing one of the various business coaching programmes available, or our very own Uncover Your Business Potential course.

For your back-office team it might be getting extra training in the basic software programs they use every day. You’d be amazed how often back-office staff can’t do something as simple as a mail merge in Word. It’s just not on. And if they’re great with the basic functions, why not learn how to get even more efficiencies out of some of these tools? It’s my guess that all of us use maybe 5% of what’s available in these powerful pieces of kit. If that could be pushed to 10% you’d see a step change in productivity within your firm.

For other team members it might be a writing course that gets them up to speed on writing clear and grammatically correct letters. It could be sending your back-office system users to quarterly user group meetings to help them (and your whole team) get more out of the existing software that you’re already paying for.

Life lessons

I’d even go so far as encouraging your team to go and do extra study just for fun. Maybe you could encourage them to do a photography course for beginners, or to learn a musical instrument. Anything that captures their interest would suffice.

Why would I suggest that, especially if you might be asked to front some of the costs?

I believe that fostering a culture of lifelong learning and curiosity adds value to the individuals involved, and to you as a business organisation. People learning in one area are often interested in learning new skills in other areas. The desire to learn new skills doesn’t happen in isolation.

So, nurture, guide and strengthen your organisation continuously. Ongoing learning and personal development should be central to your business culture. Create development plans for every person within the firm and help them to grow every year. When you lead a happy team then success will follow.

]]>Advisers need to understand the implications of the new legislation around annuity research and purchase, says Dave Miller, executive general manager (Commercial), IRESS

New rules requiring the best open market rates to be provided alongside provider annuity quotes seem straightforward, on the face of it.

There is a certain amount of devil in the detail, however, with advisers among those needing to understand the implications of the legislation.

The changes are set out in policy statement PS17/12, which took effect on 1 March and means that when guaranteed annuity quotes are provided to customers, a comparison with the best rate in the market must also be given.

The overhaul emerged from the Retirement Outcomes Review published by the FCA last summer, which underlined the low instance of people shopping around on the open market when it comes to buying an annuity.

The FCA’s research found that presenting information in a particular format was most likely to have an impact on shopping around, so new guaranteed annuity illustrations must now include one of three templates set out by the regulator.

These templates either show that the annuity quote is the best available, that a better deal could be secured by shopping around, or that a comparison could not be made because the client hadn’t consented to the use of their data for that purpose.

Where relevant, the information given to clients considering annuity purchase now includes a clear graph showing the comparison between a provider’s own rate and the best rate in the market.

Clients must also be given details such as whether the annuity is joint or single; whether the income is linked to inflation or another specified rate; the income is paid in advance or in arrears of the start date; notification that an enhanced annuity may further increase income; and details of how to shop around.

How we’ve tackled the issue

As an annuity service with real-time connections to all the open market annuity providers, IRESS is perfectly placed to support the market in sourcing the best rates in a way that meets their needs.

We have developed a flexible range of solutions to suit different customers, whether they’re providers, outsourcers or advice firms.

Some will want annuity rates in real time and some want to operate a more manual approach, and we can support both of these. Whatever the requirements, we have sought to make it as easy as possible for advisers and providers to present the new information with the guaranteed quotes they generate for clients.

Our solutions range from a data-only service – where firms simply obtain whole of market annuity rates from IRESS on the basis prescribed by the legislation – to a more comprehensive solution where we conduct a whole of market annuity comparison and produce the full documents.

Advisers will automatically be provided with the documents alongside the ones that they currently access. This means they don’t have to do anything further other than present their client with an additional page alongside the illustration that they currently give them. However, if they want to create their own process they can discard the provider’s document and produce a tailored version.

Here’s an example of the process that advisers might follow:

You log onto The Exchange and produce an annuity comparison.

From the list of results, you choose the best rate.

You answer some new PS17/12 specific questions and request the illustration.

The illustration is returned as it was previously, as well as the new PS17/12 template document (using the new information), either as part of the same document or as a new additional document

Advisers will need to ensure that if a whole of market comparison is required, they have secured confirmation from the client that they consent to their personal data being used for it to be generated.

There will doubtless be some advisers who don’t engage significantly with annuities in the post-freedoms environment. Yet they remain a core component of the retirement income suite and some 80,000 people still buy annuities every year. Research on the requirements of people approaching or at retirement invariably find that a guaranteed income remains at or near the top of the wish list.

The new rules, and the solutions available to help firms comply with them, offer advisers an opportunity to provide a valuable service to those customers while also further enhancing client relationships.

Clients, in particular the more affluent ones, are always looking for new ways to invest and more often than not, turn to their paraplanners and advisers to help them choose suitable investments that really resonate with their beliefs and views. In the main their wealth is hard earned and they understand the responsibility that comes with it and so also want to do the right thing, for themselves and for society.

With the UK’s decision to exit the European Union, and Brexit talks seeming to stall at best and appearing shambolic at worst, Britain needs to rebuild itself from within and ensure that it maintains its prominence on the world’s stage. It must not shrink back and become an insignificant island.

In recent weeks we have seen farmers and agriculture at the top of the Government agenda. Michael Gove, the Environment Secretary set out his plans for replacing the Common Agricultural Policy (CAP) which supports farmers in EU member states, and will put an end to farming subsidies from Brussels that amount to GBP3bn a year.

It is no great surprise that the Government is concerned with agriculture and farming. With approximately 70% of the UK’s landmass being agricultural, it also employs 1.5% of the workforce in the UK, over 475,000 people. Much of this land and employment is in East Anglia and the South West and those areas have been hit hard by the financial crisis and need to quickly increase production and fill some of the 40% void in what the UK consumes and what as a nation we consume; or prices will increase and we will be at the mercy of EU farmers, taxes and exchange rates.

There is a move towards more organic methods of farming and also better productivity. Farmers need capital to finance better machinery, invest in technology such as GPS, robotics and drones, and solutions to deal with rising energy and waste costs.

One area that many farmers are looking at is anaerobic digestion power generators that use feed crops or manure. The anaerobic digestion market over the years has encountered diversified applications across agriculture, municipal, and food and beverage industries. Farmers and rural entrepreneurs across the region have adopted these technologies to institute a predictable income stream and energy source with an aim to reduce dependency on mineral fertilisers and fossil fuels. Additionally, the food and beverage industry has embraced the technology to process its residue in an ecologically acceptable manner and avoid Government landfill fees (which have increased significantly over the past few years).

Limited availability of land in context to landfills, coupled with growing awareness toward waste management, will also fuel the municipal anaerobic digestion market share. Increasing deposition of waste on account of rapid urbanisation along with growing initiatives toward re-cycle and re-use are some of the indispensable parameters driving the technological adoption. Government policies such as its signature to the Paris Climate Change agreement will also force change on businesses large and small both in the way that they buy and use energy and create and dispose of waste.

Against a backdrop of UK bank branch closures and traditional lenders’ withdrawal from direct commercial lending, small and medium sized businesses are finding it increasingly difficult to access the finance they need. But there are alternative lenders that are trying to fill this gap.

UK investors can become involved in this growing area by looking for investments that focus on lending to SMEs and more specifically at those targeting the backbone of our economy, farmers and agriculture. These can be found in funds, bonds or investing directly in the underlying equities of the manufacturers.

Together we can build a great Britain post Brexit and make sure that the decision made by the UK population is workable, achievable and successful.